During an economic downturn housing prices sometimes fall across the United States, as well as in many foreign nations. In turn, many homeowners who purchased heavily leveraged houses or borrowed against their equity in their home can be left holding property with market values that are lower than the debt the owners owe on their home. As a result a segment of homeowners who have the ability to pay their mortgage payments fail to meet the contract terms of the mortgage as a result of the significant negative equity positions in the collateral property.
When payment on a home loan is not made, banks and other financial institutions that are owed the loan amount may reclaim the home in an effort to recoup some of their losses. In some instances, banks lose thousands of dollars reclaiming a home since the market value of many of these homes is less than what the bank is owed on the loan amount.
There is a need to establish a program which will give homeowners an incentive to continue making payments on their homes and, at the same time, give the financial institutions the ability to mitigate and defer their losses.